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On the relationship between absolute prudence and absolute risk aversion

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Author Info
M. A. Maggi
U. Magnani
M. Menegatti ()

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Abstract

This paper shows how, under a few standard assumptions on the utility function, the monotonicity of absolute risk aversion (ARA) and of absolute prudence (AP) are connected. We get some general Propositions on the behaviour of the two functions regarding the positions and the number of their critical points. We also examine some cases where the shape of ap allows to completely determine that of ARA.

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Publisher Info
Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2003-EP04.

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Length: 12 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:par:dipeco:2003-ep04

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Related research
Keywords: absolute risk aversion; absolute prudence; precautionary saving;

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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
  2. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May. [Downloadable!] (restricted)
  3. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  4. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May. [Downloadable!] (restricted)
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  5. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christian Bauer & Wolfgang Buchholz, 2008. "How Changing Prudence and Risk Aversion Affect Optimal Saving," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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This page was last updated on 2009-11-17.

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